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Stronger Dollar, Weaker Gold


One would think, with all of the artificial money being created around the world by central banks, gold would be making higher highs.

  • Stocks were mixed with excitement from the buyout news supporting the market but higher interest rates are serving as a drag on prices. Overnight, the volatile Shanghai Index reclaimed most of its 5% losses from the previous day, ending up 4.6% today.

  • The US dollar and the Canadian dollar are both strong this morning and it looks as if the U.S. dollar is up ahead of the employment report. The yen is weak and the yen/EUR cross has moved to new highs and is heading towards 167.50.

  • The big news in commodities was the reaction to the bearish oil inventories yesterday. The 60-minute bar at 10:00 am was wild with a range from 72.35-70.80. When the dust settled crude oil closed strong and is up 0.52% at 72.25 today. That old adage of markets that go up on bearish news is quite telling here and crude has a strong bid. It is also noteworthy that al-Zawahirithe, the mastermind behind al-Qaeda's global attacks, is back in the news, where he has called upon Muslims around the world to join the "jihad" that al-Qaeda is fighting in Iraq and to "prepare for the next jihad."

    I would not want to be short oil.

  • This morning's sad news comes from Nigeria, where the three-year-old daughter of a British expatriate has been kidnapped by unknown gunmen. The young child's father works for a subsidiary of Shell (RDS-A). This incident came only one day after five foreign oil workers were taken hostage.

  • In the gold market, prices are going down and back to testing the 65-week moving average. While I am trying not to get swept up in the daily movements of gold, the continuous rejection above $660 is bothersome as is the series of lower highs since the double top back in late April. One would think, with all of the artificial money being created around the world by central banks, gold would be making higher highs. Perhaps it is communicating something different and we should pay attention to that as well as the Baltic Dry Index as clues to future appetite for risk.

  • Newmont Mining (NEM) announced today that it has eliminated its entire 1.84 million ounce gold hedge position. The new CEO, Mr. Richard O'Brien said that "with the elimination of our gold hedge book, we have renewed our commitment to maximizing gold price leverage for our shareholders." While gold has rallied 50% in the last two years NEM has basically gone sideways. Now that Newmont is "naked" it would be ironic and quite painful if gold was topping out here for a while.

  • The ECB is on hold in terms of raising rates but Mr. Trichet said that "risks to the outlook for price stability remain on the upside" and that it is the Bank's intention to keep Europe away from "wage developments that would eventually lead to inflation pressures." He also added that over the long term Europe's economic prospects "remain on the downside."

    Inflation + slow growth = stagflation.

  • Have a great weekend!
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No positions in stocks mentioned.

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